CIOs face both individual and organizational challenges when making the transition to an outsourced services environment. Here’s what to watch for.
By Lois Coatney
Transitioning between an insourced and outsourced services environment fundamentally changes how CIOs perform their job, both in terms of overall responsibilities and strategies, as well as day-to-day activities. Adjusting to these changes presents both organizational and individual challenges for CIOs.
Internally Managed Operations
In an internally managed organization, CIOs manage people and are accountable for what individuals do. They have a fixed staff whereby capacity utilization is paramount; people need to be engaged and productive. Managers need to be the experts and understand how to best-allocate resources and solve problems. Performance evaluation focuses on meeting individual objectives and key competencies required for the role. Similarly, performance issues are typically addressed through staffing changes or other actions.
Moreover, a CIO in an internally managed operation works with a fixed staff and has limited flexibility in terms of staffing or spend, beyond bringing in contractors when demand spikes. This means that long-term skills planning and transparency into future business demands is imperative. A solid view of utilization and accurate new project effort estimation is needed to develop and maintain new capabilities within the fixed staff model. Additionally, evolving internal skills development and competencies ensures the organization’s workforce is ready to take on on new technologies and innovations.
In an internal operation, performance is typically measured on a per department basis. This can lead to a lack of consistency and process documentation as well as multiple standards, presenting a challenge if the enterprise shifts to an outsourced model.
The Challenges of Outsourced Operations
With an outsourced environment, the leadership role focuses on managing services–as defined by contractual terms and as measured by service levels–and requires greater emphasis on an adherence to process discipline. The focus must be on the “what” rather than the “how,” and performance problems have to be addressed not at the personnel level, but through supplier management processes, such as penalties or nonpayment of invoices. Too much of a hands-on approach to either managing problems or people circumvents the service provider’s processes and can be counterproductive. Operational managers are particularly at risk of getting stuck with directing day-to-day activities.
The CIO’s team also changes dramatically after a transition to outsourcing. What had been a single staff now comprises a number of service providers within the supply chain. As a result, the manager’s responsibility shifts from assessing individual performance to assessing overall service compliance to agreed service levels in the contract. Similarly, incentives to change behavior must be focused on service-level improvements rather than individual staff improvements.
Finally, demand management in an outsourced environment requires a new perspective. Since resource constraints (e.g., a fixed staff) are lifted, service capacity and costs can change in response to workload. This represents a double-edged sword. If business demands for resources aren’t effectively managed, utilization and costs can spiral out of control. Therefore, CIOs must be able to correlate business cycles to resource consumption so that they can accurately forecast and respond to spikes in demand for IT resources within their budget. Additionally, CIOs must employ mechanisms to manage the demand for resources, such as increasing or decreasing the business’s attributed cost for services or introducing restrictions in approvals of spend. It is essential to demonstrate to business users that their IT demands have financial consequences.